FIN 3310 Lecture Notes - Lecture 3: Financial Statement, Financial Ratio, Earnings Before Interest And Taxes

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Financial ratios provide meaningful information when compared to other financial ratios and standards over time and reveal the following. How a firm"s specific events affected its performance and condition. How a firm compared relative to its competition (peer group) The value of a financial ratio when held in isolation is rarely informative. As we will see, the calculation of a ratio is a simple arithmetic operation, but its interpretation is much more complex. We"ll approach this chapter very differently from the numbers crunching ratio chapter you studied in managerial accounting. By analyzing drake manufacturing company"s (drake) ratios and comparing them to its historical results (trend analysis) and its peers (cross-sectional analysis), we"ll make the numbers talk and tell us a story about drake"s financial performance. You"ve already seen and calculated all of these ratios in your managerial. The exceptions are operating income return on assets (oiroa), operating cycle and the cash conversion cycle,

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